Source: ETtech
Big sellers like RetailNet, SuperComNet and OmniTech Retail on Flipkart and its fashion affiliate Myntra besides Cloudtail and Appario on Amazon India form over 60% of these platforms’ sales.
Big affiliated sellers on India’s largest online retail platforms like Amazon India and Flipkart, who control about 80% of the e-tail market in India, will take a significant hit with Press Note 3 guidelines putting a freeze on the way business model of these companies operate.
Big sellers like RetailNet, SuperComNet and OmniTech Retail on Flipkart and its fashion affiliate Myntra besides Cloudtail and Appario on Amazon India form over 60% of these platforms’ sales.
“Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies,” said the updated Press Note 3.
All these entities sell exclusively on Flipkart and Amazon India, which would mean they will have to quickly find 75% of their business with other platforms or retailers to continue operating, said the founder of an online retailer who did not wish to be named. “They have virtually made Cloudtail non-existent. Millions of Indian retailers are going to benefit and it will create a level playing field,” said this founder.
The new rules, which come into effect from February 2019, will effectively drop the axe on seller entities Cloudtail and Appario which have equity investment from Amazon through a step-down unit, barring them from selling on the platform.
“This will effectively stop Cloudtail (on Amazon) and RetailNet (on Flipkart),” said an executive of an e-commerce company, who did not wish to be named.
“It will impact the multiple structuring of e-commerce companies. Amazon in particular, will need to change the equity structure in Cloudtail and Appario,” a legal expert said.
An Amazon spokesperson said the company is evaluating the policy. Flipkart’s spokesperson did not comment.
The new rule has also added the term ‘control’ over inventory apart from only ‘ownership’, to say that e-commerce marketplace entities cannot exercise ownership or control over the inventory.
“While this helps clarify how the regulator perceives inventory control, this will impact firms which adopt a structure where a wholesale entity sells to the vendors on the platform, often helping in pricing as well,” a legal expert said. While the Press Note 3 released in 2016 restricted an online seller from accounting for more than 25% of the sales of a marketplace, the new guidelines will restrict the loophole which online retailers exercised.
Before 2016, WS Retail on Flipkart and Cloudtail on Amazon India accounted for over 50-60% of sales on these platforms. After the guidelines came out, Flipkart and Amazon India started working with select new large sellers and were able to work around them.
* Lead image used for representational purposes only.
